CHINA’S LITTLE KNOWN SECURITY STAKES IN UKRAINE – ANALYSIS

By Monish Gulati

The Chinese position on the Ukraine crisis and the Russian intervention in Crimea has been described as being of “studied ambiguity”, and one of the objectives of this policy was to balance interests in both Russia and Ukraine. The discussion on Chinese interests in Ukraine has largely centered on military cooperation and shipbuilding, obscuring Ukraine’s developing connection to China’s food security strategy.

China late last year concluded a deal to farm three million hectares of arable Ukrainian land over the span of half a century. Under the initial agreement worth $1.7 billion with KSG Agro, Ukraine’s leading agricultural company, 100,000 hectares were slated to be leased to Xinjiang Production and Construction Corp (XPCC), a Chinese quasi-military organization, also known as Bingtuan. The leased farmland in Dnipropetrovsk region of eastern Ukraine was to be cultivated principally for crops and raising pigs and the output sold to two Chinese state-owned grain conglomerates at preferential prices. Eventually the project size was expected to increase to three million hectares, 50 percent more than China’s own agricultural land – becoming China’s largest overseas project involving farmland.

Food Security

According to the 2013 FAO report on food insecurity in the world, in 2011–13 a total of 842 million people or around one in eight people in the world are estimated to be suffering from chronic hunger, regularly not getting enough food to conduct an active life. Food security is a complex condition, with dimensions relating to availability, access, utilization and stability. The People’s Republic of China (PRC) is home to 22 percent of the world’s population, but has only 9 percent of its total arable land. In 2009 China possessed just 2 million hectares of farmland. In 2011-13, the number of undernourished people in China stood at 158 million.

The situation has been aggravated by rapid industrialization and population growth, resulting in rising demand for farmlands which are not available within the country. A recent report declared nearly one-fifth of the nation’s soil, including 19.4 percent of its crop-growing areas, as polluted. China faces increasing pressure to enhance its domestic food production as it consumes one-fifth of all global food supplies.

Although China’s domestic grain output had grown for 10 straight years, demand for imported grain had also grown. It imported nearly 14 million tonnes of cereal and cereal flours last year, an increase of more than 150 percent from 2011. With a target to become 90 percent self-sufficient in food production, the Ukraine farming project was an important part of China’s food security programme and strategy of outsourcing the production of food to farms overseas.

African nations, with their vast and sparsely populated fertile lands, offer China a solution to its rising food demand. Most Chinese investment in African agriculture is concentrated in southern Africa: Mozambique, Tanzania, Malawi and Angola. The first major Chinese investment in Africa’s agricultural sector was in 1995. Elsewhere, China has also made substantial agricultural investments in South America, where it acquired 234,000 hectares to grow soya bean and corn in Argentina.

Incidentally, Chinese efforts to seek out foreign farmlands is a global trend. Countries such as the US, Britain, Saudi Arabia, South Korea, United Arab Emirates and India have also purchased foreign farmland, initially mostly in Africa, but now increasingly also in eastern Europe, Latin America, and Asia. A study from January 2013 showed that between 0.75% and 1.75% of the world’s farmland is now being transferred from locals to foreign investors.

Ukraine Connection

Ukraine has well-developed agriculture and is one of the world’s top 10 wheat exporters. Under the deal signed between China’s XPCC and KSG Agro, a Warsaw-listed Ukrainian agricultural company, crops raised in the region were to be sold at below-market prices to two Chinese state-owned firms. In exchange for its produce, Ukraine would receive seeds, equipment, a fertilizer plant (Ukraine imports about $1 billion worth of fertilizer every year), and a plant to produce a crop protection agent. Also part of the deal is a $3 billion loan for agricultural development from China’s Export-Import bank. XPCC had also proposed to help build a highway in Ukraine’s Autonomous Republic of Crimea as well as a bridge across the Strait of Kerch.

India

Indian agricultural companies too have been involved in the recent trend of large-scale overseas acquisition of farmland in Asia and Africa. Many international companies have traditionally grown cash crops abroad, and more recently crops for producing biofuels for the global markets. The various factors driving the “outsourcing” of domestic food production have been identified as the Indian government’s concerns regarding long-term food security and diminishing ground water tables in northern and central India. Other factors include the allure of much cheaper land and more abundant water sources in overseas locations. In 2011-13, China had 158 million undernourished people as against 213.8 million in India. The Indian government has been taking steps such as high-level trade diplomacy and lines of credit from the Export-Import Bank to facilitate this trend.

Assessment

The decision of China to partner in farming projects by Ukraine, a country once referred to as Russia’s breadbasket, appears to be based on geopolitical calculations. It was only after the Ukrainian government lifted a law that barred foreigners from buying land last year that paved the way for the Chinese project. Some analysts consider the Ukrainian decision as an attempt to distance the country from Russia and build stronger ties with the European Union and other partners. Ukraine and China, to further their partnership, set up an Intergovernmental Commission on Cooperation, as well as several sub-committees to intensify bilateral trade and economic cooperation. The Ukrainian economy and agricultural sector require the infusion of Chinese investment.

The Chinese situation in Ukraine illustrates how globalization has moved food security beyond a nation’s borders and neighbourhood. China characteristically employs a large percentage of Chinese labour at its overseas farm acquisitions, and if the Ukraine project had progressed beyond the initial stage it would have presented an added dimension to Chinese security concerns in Ukraine.